The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (12 page)

Matson entered the container era on August 31, 1958, when the
Hawaiian Merchant
sailed from San Francisco with 20 containers on its deck and general cargo in its hold. The
Hawaiian Merchant
and five other C-3s were soon carrying 75 containers at a time, painstakingly loaded by old revolving cranes while the first of Matson’s new cranes was being erected in Alameda, on the east side of San Francisco Bay. On January 9, 1959, the world’s first purpose-built container crane went into operation, loading one 40,000-pound box every three minutes. At that rate, the Alameda terminal could handle 400 tons per hour, more than 40 times the average productivity of a longshore gang using shipboard winches. Similar cranes were installed in Los Angeles and Honolulu in 1960.
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By then, Matson had moved to phase two of the plan that Weldon had laid out at the start of 1957. The
Hawaiian Citizen
, another C-3 freighter, was modified to carry containers stacked six high and six abreast in its holds as well as on its deck. Four vertical steel angle bars, attached to the ship’s structure, were installed to constrain each stack of containers within the holds. At the top of each angle bar, a large steel angle helped guide the containers as the crane lowered them into place. The hatches were expanded so that every stack of containers was accessible to the crane, making the hatch covers so large, 52 feet by 54 feet, that the crane would have to lift them out of the way before starting work on the containers beneath. One of the five holds was outfitted with a cooling system and electrical hookups for refrigerated containers, and lights in the engine room gave warning if the temperature within any of the 72 refrigerated containers was too high or too low. After the hold was loaded and the hatch covers put into place, additional containers could be stacked two-high atop the covers, giving the ship a capacity of 408 25-ton containers. Maintaining stability was a constant problem, especially on heavily loaded runs to Hawaii; when necessary, Matson solved this by organizing the containers before loading so that the heaviest would go at the bottom of each stack, lowering the vessel’s center of gravity.

The $3.8 million conversion was completed in six months, and in May 1960 the
Hawaiian Citizen
began sailing a triangular route between Los Angeles, Oakland, and Honolulu. When the vessel arrived in port, the longshoremen first removed the lashings from the deck containers. The crane lifted the deck containers onto chassis pulled by transporters, which took them to the marshaling yard for onward shipment. Once the deck was clear, the crane lifted the hatch covers over one row and unloaded the first cell, occupied by a stack of six containers. The crane then switched to two-way operation. A transporter pulling an outbound container would pull beneath the crane, alongside one with an empty chassis. Every three minutes, the hoist would dive into the ship, lift an arriving container, move it to the waiting chassis, then pick up the outbound container from the other chassis and return to the ship. As it finished each row, the crane would move along the dock to position the boom directly over the next row. Instead of spending half its time in port, like other ships, the
Hawaiian Citizen
was able to spend twelve and a half days of each fifteen-day voyage at sea, making money. Matson’s cautious directors were so pleased that they agreed to spend $30 million for containerships by 1964.
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By now, everyone in the close-knit maritime industry was talking containers. The talk, however, far outstripped the action. Aside from Matson in the Pacific and Pan-Atlantic, now renamed Sea-Land Service, on the Atlantic coast, very few ship lines were putting containers to routine use. Carriers needed to replace their war-era fleets, but they were afraid to do so at a moment when the shipping industry seemed to be on the cusp of technological change.

It was easy enough to conclude that containers would change the business, but it was not obvious that they would revolutionize it. Containers, said Jerome L. Goldman, a leading naval architect, were “an expedient” that would do little to reduce costs. Many experts considered the container a niche technology, useful along the coast and on routes to U.S. island possessions, but impractical for international trade. The risk of placing multimillion-dollar bets on what might prove to be the wrong technology was high. Sea-Land’s shipboard cranes were indeed radically new, but they soon developed a reputation for maintenance problems that caused ships to be delayed. American President Lines, which sailed across the Pacific, created a container that attached to a single pair of wheels so that a truck could pull it without a chassis, but had to abandon the idea once the company added up the cost of giving every container extra structural elements to replace the chassis. The experience of Grace Line offered a graphic warning. Grace had won a $7 million government subsidy to convert two vessels into containerships and spent another $3 million on chassis, forklifts, and 1,500 aluminum containers, only to have longshoremen in Venezuela refuse to handle its highly publicized ships. Having badly misjudged the politics and the economics of container shipping, it would eventually sell the ships to Sea-Land at a loss. As a Grace executive noted ruefully, “The concept was valid, but the timing was wrong.”
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Sea-Land itself was finding the container business difficult. Its Puerto Rico service was struggling against Bull Line, which controlled half the southbound trade and 90 percent of shipments from Puerto Rico to New York. Bull opened a trailership service in April 1960 and added containerships in May 1961, skimming some of the shippers McLean had hoped to convert to containers. Business on the mainland was not much better. A few food and drug companies, such as Nabisco and Bristol Myers, signed up right away to ship from New York-area factories to Houston, and Houston’s chemical plants used containers to send fertilizers and insecticides to the Northeast. Most big industrial companies, though, were not desperate for container shipping. Ideas such as a combined sea-air service, with Sea-Land carrying cargo from New York to New Orleans and an airline taking it onward to Central America, found few takers. The cargo flow through Pan-Atlantic’s home terminal at Newark jumped from 228,000 tons in 1957 to 1.1 million tons in 1959, as the Puerto Rico service began—and then abruptly stopped growing. Another longshore strike in 1959 did serious damage. Revenues fell. From 1957 through 1960, Sea-Land’s container shipping business lost a total of $8 million. McLean Industries was forced to suspend its dividend.
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In desperation, McLean tried in 1959 to buy Seatrain Lines, the only other coastal ship line in the East and an opponent of Waterman’s efforts to secure operating subsidies on international routes. Seatrain’s management turned him down. Competitors traded rumors that McLean Industries was near bankruptcy. Waterman, unprofitable without subsidies, was put up for sale, minus the cash and many of the ships that had made it so attractive to McLean in 1955.
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The problem, McLean decided, was the maritime mind-set: Pan-Atlantic’s staff, experienced in the slow-moving ways of the maritime industry, did not know how to sell to an industrial traffic manager who cared not about ships, but about getting freight to the customer on schedule at low cost. McLean brought in a team of aggressive young trucking executives to turn the business around. He had agreed not to poach McLean Trucking employees when he gave up the trucking company in 1955. Now, former McLean Trucking employees, many of them still in their twenties or early thirties, began moving into key positions at Pan-Atlantic, alongside young talent head-hunted from other big truck lines.

“They were just recruiting,” one of those hires remembered. “It was like a football draft. You recruit the best quarterback.” Many were invited to Newark without being told what job McLean had in mind for them. When they arrived, they were given intelligence and personality tests—a rare practice in the 1950s. McLean wanted people who were smart, aggressive, and entrepreneurial; the wrong test scores meant no job offer. Education did not matter; although Malcom McLean had a box at the Metropolitan Opera, intellectual airs were frowned upon, and new hires were advised to fracture their grammar to fit in with a crowd of truckers. “When we had nothing else to do, we would stand and pitch pennies,” remembered naval architect Charles Cushing, an MIT graduate who joined the company in 1960. “They don’t teach you to pitch pennies at the Wharton School.”
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Those who made the grade were given large responsibilities. Bernard Czachowski was hired from McLean Trucking to oversee Pan-Atlantic’s vital relations with the independent truck lines that picked up and delivered its freight. Kenneth Younger, from Roadway Freight, came to manage the Puerto Rican business. Paul Richardson, who had entered McLean Trucking’s management training program out of college in 1952 and had stayed with the truck line when McLean spun it off, signed on as New England sales manager in 1960 and within eight months was in charge of sales nationwide. Richardson’s secret weapon was a simple form with the pompous title “Total Transportation Cost Analysis.” The form provided a side-by-side comparison of the costs of shipping a product by truck, rail, and containership, including not just transportation rates, but also local pickup and delivery, warehousing, and insurance costs. Salesman were instructed to add up each column to show the saving containers would bring, and then multiply by the number of loads the company shipped over the course of a year. The bottom line was the total annual saving, a number much more likely to be large, and memorable, than the traditional measure of a few dollars per ton.
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The Pan-Atlantic name was dropped in early 1960, and the ship line was rechristened Sea-Land Service to emphasize that it was a new venture on the leading edge of the freight industry. The work was seven days a week, an exciting, demanding environment. Memos were not wanted. Conflict among executives was a given; managers were expected to meet, thrash out their differences, and act. Performance was measured constantly, and rewarded not with cash but with stock in the fast-growing company. Decades later, those early Sea-Land employees remembered the years when they were creating the container shipping industry as the best time of their lives. “It was a hard-charging, fast-charging company. Malcom would give us assignments and we didn’t ask questions, we just went out and did ‘em,” one said. Malcom McLean—universally called Malcom behind his back, but addressed by every single employee as Mr. McLean—presided over it all, constantly checking the numbers, making sure that the cash flowed.
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After a stinging $1.5 million loss in 1960, McLean sought to cope with adversity in his usual way: by plunging deeper into debt. In 1961 Sea-Land bought four World War II tankers and lengthened them by inserting large sections, known as midbodies, built in a German shipyard. These “jumboized” vessels could carry 476 containers—twice as many as Sea-Land’s existing containerships, eight times as many as the
Ideal-X.
Competitors complained that the German reconstruction made Sea-Land’s vessels ineligible to sail domestic routes as “American” ships, but to no avail. The government approved McLean’s application to put the ships into service between Newark and California in 1962, making Sea-Land the only intracoastal ship line. The unbalanced trade made the economics of the intracoastal route treacherous: the eastbound service, heavy with canned fruits and vegetables from California’s Central Valley, handled ten thousand tons a month, but California-bound ships carried only seven thousand tons and lots of empty containers. Those same economics, though, assured that there would be no serious competition on the intracoastal route. There simply was not enough freight.
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Even as Sea-Land expanded to the West Coast, McLean kept a close eye on Puerto Rico. Puerto Rico was an attractive market for U.S. ship lines. The economy was growing by leaps and bounds under the commonwealth government’s economic development program, Operation Bootstrap. The program, featuring generous tax incentives, lured hundreds of U.S.-based manufacturers to what in the 1950s had been an impoverished and heavily agricultural island. They would import their raw materials from the U.S. mainland, use cheap Puerto Rican labor for assembly, and ship their products back to the United States. Private fixed investment in Puerto Rico had more than doubled between 1953 and 1958, and the island’s economic output was growing 8 to 10 percent per year. This boom meant rapidly rising demand for shipping—and, thanks to complex U.S. laws governing the maritime sector, only U.S. domestic ship lines could handle the trade. Foreign-owned companies and the U.S. companies subsidized to sail international routes were ineligible.
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Sea-Land had been sailing to San Juan since 1958, but its service was less than exemplary. It owned no terminal. Incoming containers with freight for multiple customers were unstuffed in old aluminum warehouses near the dock, where the contents often sat for months because there was no system for notifying customers that their freight had arrived. Containers trucked elsewhere on the island tended to disappear, to be converted into shops, storage sheds, or homes. “It was chaotic,” recalled an executive in the Puerto Rico operation. Sea-Land’s efforts to gain market share in Puerto Rico had made little headway. Bull Insular Line, the dominant carrier, controlled more than half the shipments from the mainland to Puerto Rico and 90 percent of the freight headed north.
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In March 1961, McLean Industries made a surprise offer to buy Bull Line. The $10 million bid was an enormous stretch for a company that was at the limit of its resources. McLean Industries’ huge loss in 1960 had wiped out all of its retained earnings. Sea-Land had negative net worth of $1.1 million, although McLean’s accounting made the company’s situation look worse than it really was. Bull Line was heavily indebted as well, having lost money in the two prior years trying to compete with Sea-Land. Its owners were eager to sell out. The attraction for McLean was that the deal would give Sea-Land a near-monopoly in the Puerto Rico trade—which is exactly why federal antitrust authorities opposed it. Bull’s directors received government telegrams advising them not to proceed with the sale to McLean, and they quickly found another buyer. McLean was left to seek revenge by trying to block Bull’s efforts to acquire two used ships from the navy.
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